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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1994
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 1-6402-1
SERVICE CORPORATION INTERNATIONAL
(Exact name of registrant as specified in charter)
TEXAS 74-1488375
(State or other jurisdiction of (I. R. S. employer identification
incorporation or organization) number)
1929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
(Address of principal executive offices) (Zip code)
(713) 522-5141
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to the filing
requirements for the past 90 days. YES X NO
_________ _______
The number of shares outstanding of the registrant's common stock as of
August 5, 1994, was 86,090,065 (excluding treasury shares).
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SERVICE CORPORATION INTERNATIONAL
INDEX
Page
Part I. Financial Information
Consolidated Balance Sheet -
June 30, 1994 (Unaudited) and December 31, 1993 3
Consolidated Statement of Income (Unaudited) -
Three Months Ended June 30, 1994 and 1993 4
Six Months Ended June 30, 1994 and 1993
Consolidated Statement of Cash Flows (Unaudited) -
Six Months Ended June 30, 1994 and 1993 5
Consolidated Statement of Stockholders' Equity (Unaudited) -
Six Months Ended June 30, 1994 6
Notes to the Consolidated Financial Statements (Unaudited) 7-10
Management's Discussion and Analysis of Results of Operations
and Financial Condition 11-17
Part II. Other Information 18
Signature 19
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SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
JUNE 30,
1994 DECEMBER 31,
(THOUSANDS) (UNAUDITED) 1993
________________________________________________________________________________
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . .$ 38,638 $ 20,822
Receivables, net of allowances . . . . . . . . . . . 240,774 236,786
Inventories . . . . . . . . . . . . . . . . . . . . 52,233 45,211
Other . . . . . . . . . . . . . . . . . . . . . . . 13,860 9,640
---------- ----------
Total current assets . . . . . . . . . . . . . . . 345,505 312,459
---------- ----------
Prearranged funeral contracts . . . . . . . . . . . . 1,298,558 1,244,866
Long-term receivables . . . . . . . . . . . . . . . . 538,014 500,062
Cemetery property, at cost . . . . . . . . . . . . . . 473,244 417,050
Property, plant and equipment, at cost (net) . . . . . 666,092 606,826
Deferred charges and other assets . . . . . . . . . . . 211,215 174,345
Names and reputations (net) . . . . . . . . . . . . . . 491,107 427,696
---------- ----------
$4,023,735 $3,683,304
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities . . . . . .$ 121,520 $ 96,881
Income taxes . . . . . . . . . . . . . . . . . . . 20,937 18,695
Current maturities of long-term debt . . . . . . . . 67,945 24,982
---------- ----------
Total current liabilities . . . . . . . . . . . . 210,402 140,558
---------- ----------
Long-term debt . . . . . . . . . . . . . . . . . . . . 1,117,940 1,062,222
Deferred income taxes . . . . . . . . . . . . . . . . . 168,209 146,968
Other liabilities . . . . . . . . . . . . . . . . . . 211,421 185,636
Deferred prearranged funeral contract revenues . . . 1,375,843 1,263,407
Stockholders' equity:
Common stock, $1 par value, 200,000,000 shares
authorized, 86,028,032 and 84,859,110 issued
and outstanding. . . . . . . . . . . . . . . . . . 86,028 84,859
Capital in excess of par value . . . . . . . . . . . 524,399 517,902
Retained earnings . . . . . . . . . . . . . . . . . 334,376 284,879
Foreign translation adjustment . . . . . . . . . . . (4,883) (3,127)
---------- ----------
Total stockholders' equity . . . . . . . . . . . . 939,920 884,513
---------- ----------
$4,023,735 $3,683,304
========== ==========
(See notes)
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SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
(Thousands, except per share amounts) 1994 1993 1994 1993
___________________________________________________________________________________________________________________
Revenues . . . . . . . . . . . . . . . $ 262,862 $ 217,049 $ 524,120 $ 441,420
Costs and expenses . . . . . . . . . . (186,121) (155,129) (357,837) (308,029)
--------- --------- --------- ---------
Gross profit . . . . . . . . . . . . . 76,741 61,920 166,283 133,391
General and administrative expenses . . (11,370) (8,997) (24,871) (18,887)
--------- --------- --------- ---------
Income from operations . . . . . . . . 65,371 52,923 141,412 114,504
Interest expense . . . . . . . . . . . (16,832) (14,307) (32,456) (28,888)
Other income . . . . . . . . . . . . . 2,171 1,717 4,686 2,665
--------- --------- --------- ---------
Income before income taxes . . . . . . 50,710 40,333 113,642 88,281
Provision for income taxes . . . . . . (20,515) (16,000) (46,002) (34,700)
--------- --------- --------- ---------
Income before cumulative effect of
change in accounting principles . . . 30,195 24,333 67,640 53,581
Cumulative effect of change in
accounting principles (net of
income tax) . . . . . . . . . . . . . - - - (2,031)
--------- --------- --------- ---------
Net income . . . . . . . . . . . . . . $ 30,195 $ 24,333 $ 67,640 $ 51,550
========= ========= ========= =========
Earnings per share:
Primary -
Income before cumulative effect
of change in accounting
principles . . . . . . . . . . . . $ .35 $ .29 $ .79 $ .66
Cumulative effect of change in
accounting principles (net of
income tax) . . . . . . . . . . . . - - - (.03)
--------- --------- --------- ---------
Net income . . . . . . . . . . . . $ .35 $ .29 $ .79 $ .63
========= ========= ========= =========
Fully diluted -
Income before cumulative effect
of change in accounting
principles . . . . . . . . . . . . $ .33 $ .28 $ .74 $ .62
Cumulative effect of change in
accounting principles (net of
income tax) . . . . . . . . . . . . - - - (.02)
--------- --------- --------- ---------
Net income . . . . . . . . . . . . $ .33 $ .28 $ .74 $ .60
========= ========= ========= =========
Dividends per share . . . . . . . . . . $ .105 $ .10 $ .21 $ .20
========= ========= ========= =========
Weighted average number of shares
and equivalents . . . . . . . . . . . 86,281 83,616 86,033 81,773
========= ========= ========= =========
(See notes)
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SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
(THOUSANDS) 1994 1993
_______________________________________________________________________________________________________________
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,640 $ 51,550
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 30,501 23,811
Provision for deferred income taxes . . . . . . . . . . . . . . . . 10,116 1,800
(Gain) loss from dispositions (net) . . . . . . . . . . . . . . . . (796) (64)
Cumulative effect of change in accounting principles . . . . . . . . - 2,031
Change in assets and liabilities net of effects from acquisitions:
(Increase) decrease in receivables . . . . . . . . . . . . . . . . . (37,240) (4,622)
Change in prearranged funeral contracts and associated
deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . 44,439 913
(Increase) decrease in other assets . . . . . . . . . . . . . . . . (29,938) (209)
Increase in other liabilities . . . . . . . . . . . . . . . . . . . 33,313 1,922
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,309) (780)
--------- ---------
Net cash provided by operating activities . . . . . . . . . . . . . . . . 113,726 76,352
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . (39,845) (27,317)
Proceeds from sales of property, plant and equipment . . . . . . . . . 7,837 7,184
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . (112,743) (56,923)
Loans issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,012) (33,350)
Principal payments received on loans . . . . . . . . . . . . . . . . . 41,504 8,993
Change in investments and other . . . . . . . . . . . . . . . . . . . (23,115) 392
--------- ---------
Net cash (used in) investing activities . . . . . . . . . . . . . . . . . . (146,374) (101,021)
Cash flows from financing activities:
Borrowings (payments) under lines of credit and commercial paper . . . 82,784 (103,500)
Subordinated debentures issued . . . . . . . . . . . . . . . . . . . . - 150,000
Payments of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,912) (8,034)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,926) (16,038)
Exercise of stock options and other . . . . . . . . . . . . . . . . . 518 3,015
--------- ---------
Net cash provided by financing activities . . . . . . . . . . . . . . . . 50,464 25,443
--------- ---------
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . 17,816 774
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . 20,822 31,253
--------- ---------
Cash and cash equivalents at June 30, 1994 and 1993 . . . . . . . . . . . . $ 38,638 $ 32,027
========= =========
Cash used for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,225 $ 28,704
========= =========
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39,182 $ 37,986
========= =========
(See notes)
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SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
CAPITAL IN FOREIGN
COMMON EXCESS OF RETAINED TRANSLATION
(THOUSANDS) STOCK PAR VALUE EARNINGS ADJUSTMENT
- - ----------- ---------- ---------- --------- ----------
Balance at December 31, 1993 . . . . . . . . . . . $ 84,859 $517,902 $284,879 $(3,127)
Net income . . . . . . . . . . . . . . . . . . . 67,640
Common stock issued:
Stock option exercises, restricted stock
grants and other . . . . . . . . . . . . . . . 159 2,811
Acquisitions . . . . . . . . . . . . . . . . . . 1,036 4,359 (91)
Other . . . . . . . . . . . . . . . . . . . . . . (26) (673)
Dividends on common stock ($.105 per share) . . . (18,052)
Foreign translation adjustment . . . . . . . . . . (1,756)
--------- ---------- --------- ---------
Balance at June 30, 1994 . . . . . . . . . . . . . $ 86,028 $524,399 $334,376 $(4,883)
========= ========= ======== =========
(See notes)
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SERVICE CORPORATION INTERNATIONAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements for the six months ended June 30, 1994
and 1993 include the accounts of Service Corporation International and all
majority-owned subsidiaries (The Company) and are unaudited but include all
adjustments, consisting only of normal recurring accruals and any other
adjustments, which management considers necessary for a fair presentation of
the results for these periods. These financial statements have been prepared
consistent with the accounting policies described in the annual report on Form
10-K filed with the Securities and Exchange Commission for the year ended
December 31, 1993 and should be read in conjunction therewith. Certain
reclassifications have been made to the prior period to conform to the current
period presentation with no effect on previously reported net income.
2. CHANGE IN ACCOUNTING PRINCIPLES
On January 1, 1993 the Company changed its method of accounting for
prearranged funeral sales contracts, trust earnings, sales of cemetery
interment rights and other related products and services and cemetery perpetual
care trust funds. These changes are more fully discussed in Note 2 in the
Company's annual report filed on Form 10-K for the year ended December 31,
1993. The cumulative effect of these changes resulted in an after tax charge
of $2,031,000 or $.03 per share in the first quarter of 1993.
3. ACQUISITIONS
The Company has acquired certain funeral and cemetery operations during each
six month period ended June 30, 1994 and 1993. The consideration for these
acquisitions consisted of cash, common stock of the Company, issued or assumed
debt and the retirement of loans receivable issued by the Company's finance
subsidiary. The excess of purchase price over the fair value of assets
acquired and liabilities assumed is included in names and reputations on the
Consolidated Balance Sheet and will be amortized over a 40 year period. The
operating results of all of these acquisitions have been included since their
respective dates of acquisitions.
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The effect of acquisitions on the Consolidated Balance Sheet was as follows:
Six Months Ended June 30,
(Thousands) 1994 1993
________________________________________________________________________________________________________________
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,347 $ 6,385
Prearranged funeral contracts . . . . . . . . . . . . . . . . . . . 44,524 30,973
Long-term receivables . . . . . . . . . . . . . . . . . . . . . . . 3,732 12,077
Cemetery property . . . . . . . . . . . . . . . . . . . . . . . . . 47,773 50,396
Property, plant and equipment . . . . . . . . . . . . . . . . . . . 45,456 18,582
Deferred charges and other assets . . . . . . . . . . . . . . . . . 3,560 (5,937)
Names and reputations . . . . . . . . . . . . . . . . . . . . . . . 70,189 3,781
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . (20,580) 9,904
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . (25,271) (7,246)
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . (17,464) (26,713)
Deferred prearranged funeral contract revenues . . . . . . . . . . (46,219) (31,015)
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . (5,304) (4,264)
--------- ---------
Cash used for acquisitions . . . . . . . . . . . . . . . . . $ 112,743 $ 56,923
========= =========
The following represents the unaudited pro forma results of consolidated
operations as if these acquisitions had occurred on January 1, 1993. This
information does not purport to be indicative of results which may occur in
the future.
Six Months Ended June 30,
(Thousands, except per share amounts) 1994 1993
_______________________________________________________________________________________________________________
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 544,392 $ 518,076
Income before cumulative effect
of change in accounting principles . . . . . . . . . . . . . $ 70,298 $ 61,909
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,298 $ 59,878
Primary earnings per share before cumulative
effect of change in accounting principles . . . . . . . . . . $ .81 $ .74
Primary earnings per share . . . . . . . . . . . . . . . . . . . . $ .81 $ .71
Subsequent event
The Company has made an offer to acquire 100% of Great Southern Group PLC,
(GSG) the second largest publicly traded funeral provider in Great Britain for
a total cost of approximately $173,800,000 United States dollars (USD). The
board of directors of GSG has recommended that its shareholders accept the
Company's offer. As of August 10, 1994 the Company owns, or has commitments to
acquire, 77.7% of GSG's common shares and 71.8% of its convertible shares. GSG
owns 157 funeral homes, 13 crematories and two cemeteries and reported revenues
of approximately $50,000,000 (USD) for the year ended December 31, 1993.
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4. DEFERRED PREARRANGED FUNERAL CONTRACT REVENUES
Deferred prearranged funeral contract revenues include the contract amount of
all price guaranteed prearranged funeral service contracts as well as the
accrued trust earnings and increasing insurance benefits earned through the
balance sheet date. The Company will continue to defer additional accruals of
trust earnings and insurance benefits as they are earned until the performance
of the funeral service. Upon performance of the funeral service, the Company
will recognize the fixed contract price as well as total accumulated trust
earnings and increasing insurance benefits as funeral service revenues.
The recognition of the June 30, 1994 balance in future funeral revenue is
expected to occur in the following years based on actuarial assumptions as
follows:
(Thousands)
-----------
1994 (remaining six months) . . . . . . . . . . . . . . $ 60,434
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 112,918
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 105,138
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 97,576
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 90,286
1999 and through 2003 . . . . . . . . . . . . . . . . . 346,167
2004 and thereafter . . . . . . . . . . . . . . . . . . 563,324
----------
$1,375,843
==========
5. DEBT
In July 1994, the Company's revolving credit agreements were amended to provide
for borrowings up to $700,000,000 (previously $600,000,000). The 364 day
portion supporting the commercial paper for $450,000,000 expires on July 26,
1995 and contains provisions for renewals. At the end of any term, the
oustanding balance may be converted into a two year term loan. The committed
portion for $250,000,000 expires July 22, 1997. The Company may in July of
each year, commencing in 1995, extend the term of the $250,000,000 agreement
for a year with the consent of all the banks. The interest rates are based
generally on various indices determined by the Company. In addition, the
Company pays a quarterly facility fee ranging from .08% to .125% on the
commitment amount. The terms of the revolving credit agreements include
various convenants which provide, among other things, for the maintenance of a
certain level of consolidated net worth, the maintenance of certain ratios and
restrictions on certain payments. These credit agreements are to be used for
general corporate purposes, including acquisitions, and support for the
Company's selling of commercial paper.
The Company's committed portion of the revolving credit loan agreement
borrowings have been reduced by $169,000,000 since year end to $216,000,000 at
June 30, 1994 with an average interest rate of 4.5%. The credit loan agreement
was also used to support the selling of commercial paper totaling $247,011,000
at June 30, 1994, with an average interest rate of 4.6%. The credit loan
agreement borrowings and the commercial paper are classified as long-term
since it is the Company's intent to renew or refinance with long-term
borrowings.
Through June 30, 1994, the Company has issued $23,624,000 of registered
convertible debentures at an approximate interest rate of 5%. These debentures
have varying conversion prices from $26.17 through $33.84 and were used to fund
acquisitions.
At June 30, 1994, the Company's Canadian subsidiary has borrowed
$4,773,000 (USD) under its separate bank line of credit during 1994 to fund
Canadian acquisitions. During July 1994, the Company's Australian subsidiary
entered into a $7,200,000 (USD) line of credit with an Australian bank.
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On August 31, 1993, the Company entered a currency swap agreement with a
bank that hedged the borrowings for the Company's initial investment in its
Australian subsidiary. As part of this agreement, the Company pays the bank a
blended interest rate (6.28% at June 30, 1994) on $110,000,000 Australian
dollars (AUD) and receives a floating interest rate (3.5% at June 30, 1994) on
$73,590,000 USD. This agreement expires December 29, 2000.
On December 31, 1993, effective February 1, 1994, the Company entered into
an interest rate swap agreement with a bank having a notional amount of
$150,000,000 (USD). This interest rate swap was partially unwound by the
Company on May 19, 1994 by paying the bank a fee of $4,693,000. Such fee will
be amortized into income through February 1, 1999. Under this agreement, the
Company pays a floating interest rate (3.375% at June 30, 1994) on $75,000,000
and receives a 5.36% fixed interest rate on $75,000,000. This agreement
terminates February 1, 1999.
On February 17, 1994, effective March 1, 1994, the Company entered a
currency swap agreement with a bank that hedged the borrowings for an
additional Australian acquisition. Under this agreement, the Company pays the
bank a fixed interest rate of 6.61% on $32,715,000 (AUD) and receives a
variable interest rate (4.11% at June 30, 1994) on $23,414,000 (USD). This
agreement expires March 1, 1999.
6. SUPPLEMENTAL INFORMATION - NON-CASH TRANSACTIONS
Six Months Ended June 30,
(Thousands) 1994 1993
- - ---------------------------------------------------------------------------------------------------------
Common stock issued under restricted stock plans . . . . . . . $1,646 $ 2,708
Debenture conversion . . . . . . . . . . . . . . . . . . . . . - 97,164
Cumulative effect of change in accounting principles . . . . . - 2,031
7. RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the six months ended June 30, 1994
was 3.65. For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income before income taxes, less undistributed income of
equity investees which are less than 50% owned, plus the minority interest of
majority-owned subsidiaries with fixed charges, and plus fixed charges
(excluding capitalized interest and preferred dividends). Fixed charges
consist of interest expense, whether capitalized or expensed, amortization of
debt costs, one-third of rental expense which the Company considers
representative of the interest factor in the rentals and preferred dividends.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SIX MONTHS ENDED JUNE 30, 1994
COMPARED TO SIX MONTHS ENDED JUNE 30, 1993
OVERVIEW:
The majority of the Company's funeral homes and cemeteries are managed in
groups called clusters. Clusters are primarily designated in metropolitan
areas to take advantage of operational efficiencies, including the sharing of
operating expenses such as service personnel, vehicles, preparation services,
clerical staff and certain building facility costs. The Company has
approximately 166 clusters which range in size from two operations to 53
operations. There may be more than one cluster in a given metropolitan area,
depending upon the level and degree of shared costs.
The cluster management approach recognizes that, as the Company adds
operations to a geographic area that contains an existing Company presence,
additional economies of scale through cost sharing will be achieved and the
Company will also be in a better position to serve the population that resides
within the area served by the cluster. Funeral service and cemetery operations
primarily depend upon a long-term development of customer relationships and
loyalty. Over time, these client families may relocate within a cluster area
which may justify the relocation or addition of Company locations. The Company
attempts to satisfy this need for convenient locations by either acquiring
existing independent locations within the Company's cluster areas or
constructing satellite funeral homes (sometimes on Company-owned cemeteries)
while still maintaining the sharing of certain expenses within that cluster of
operations.
RESULTS OF OPERATIONS:
Segment information for the Company's three lines of business are as follows:
Six Months Ended June 30, Percentage
(Thousands) 1994 1993 Increase Increase
______________________________________________________________________________________________________________________
<C
Revenues:
Funeral . . . . . . . . . . . $ 350,008 $ 297,800 $ 52,208 17.5%
Cemetery . . . . . . . . . . . 164,776 136,304 28,472 20.9
Financial services . . . . . . 9,336 7,316 2,020 27.6
--------- --------- --------
524,120 441,420 82,700 18.7
--------- --------- --------
Costs and expenses:
Funeral . . . . . . . . . . . 240,612 206,665 33,947 16.4
Cemetery . . . . . . . . . . . 112,073 97,122 14,951 15.4
Financial services . . . . . . 5,152 4,242 910 21.5
--------- --------- --------
357,837 308,029 49,808 16.2
--------- --------- --------
Gross profit and margin percentage:
Funeral . . . . . . . . . . . 109,396 31.3% 91,135 30.6% 18,261 20.0
Cemetery . . . . . . . . . . . 52,703 32.0 39,182 28.7 13,521 34.5
Financial services . . . . . . 4,184 44.8 3,074 42.0 1,110 36.1
--------- --------- --------
$ 166,283 31.7% 133,391 30.2% $ 32,892 24.7%
========= ========= ========
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Funeral
Funeral revenues were generated as follows:
Six Months Ended
June 30, Increase/ Percentage
(Thousands) 1994 1993 (Decrease) Increase
_______________________________________________________________________________________________________________________
Existing clusters . . . . . . . . . . $ 311,770 $ 279,927 $ 31,843 11.4%
New clusters* . . . . . . . . . . . . 23,565 1,347 22,218
----------- ----------- ---------
Total clusters . . . . . . . . . . . 335,335 281,274 54,061 19.2%
Non-cluster and disposed operations . 14,673 16,526 (1,853)
----------- ----------- ---------
Total funeral revenues . . . . . . . $ 350,008 $ 297,800 $ 52,208 17.5%
=========== =========== =========
The $31,843,000 increase in revenues at existing clusters was the result
of 5,052 or 6.1% more funeral services performed and a $168 or 4.9 % higher
average sales price. Included in this increase was $21,372,000 in revenues from
locations acquired since the beginning of 1993. It is anticipated that the
Company's revenue growth will primarily be generated from acquired operations
(added to existing clusters and the creation of new clusters) as well as higher
average sales prices.
During the six months ended June 30, 1994, the Company sold $108,749,000
of prearranged funeral services compared to $70,142,000 for the same period in
1993. These prearranged funeral services are deferred and will be reflected in
funeral revenues in the periods that the funeral services are performed. The
current emphasis on sales of prearranged funerals is expected to continue.
Funeral costs were incurred as follows:
Six Months Ended
June 30, Increase/ Percentage
(Thousands) 1994 1993 (Decrease) Increase
______________________________________________________________________________________________________________________
Existing clusters . . . . . . . . . . $ 198,393 $ 180,646 $ 17,747 9.8%
New clusters* . . . . . . . . . . . . 16,683 868 15,815
------------ ----------- ---------
Total clusters . . . . . . . . . . . 215,076 181,514 33,562 18.5%
Non-cluster and disposed operations . 11,390 12,334 (944)
Administrative overhead . . . . . . . 14,146 12,817 1,329
----------- ---------- ---------
Total funeral costs . . . . . . . . $ 240,612 $ 206,665 $ 33,947 16.4%
=========== ========== =========
Total funeral gross profit margin increased to 31.3% compared to 30.6%
recorded last year. This gross profit margin improvement was achieved despite
the large number of acquisitions, added to both existing and new clusters, which
have occurred since the beginning of 1993. Typically, acquisitions will
temporarily exhibit slightly lower gross profit margins than the Company's
existing locations. Acquisitions, since the beginning of 1993, accounted for
$15,750,000 of the existing cluster cost increase. The improved gross profit
margin for existing clusters reflects the increased revenues discussed above,
without a corresponding percentage increase in costs at other funeral homes
included in existing clusters. Administrative overhead costs related to funeral
operations decreased to 4.0% of revenues in 1994 compared to 4.3% of revenues in
1993.
_______________________________
*Represents new geographic areas entered into since the beginning of 1993
for the period that those businesses were owned by the Company.
12
13
Cemetery
Cemetery revenues were generated as follows:
Six Months Ended
June 30, Increase Percentage
(Thousands) 1994 1993 (Decrease) Increase
______________________________________________________________________________________________________________________________
Existing clusters . . . . . . . . . . $ 152,634 $ 130,671 $ 21,963 16.8%
New clusters* . . . . . . . . . . . . 6,599 - 6,599
----------- ----------- ---------
Total clusters . . . . . . . . . . . 159,233 130,671 28,562 21.9%
Non-cluster and disposed operations . 5,543 5,633 (90)
----------- ----------- ---------
Total cemetery revenues . . . . . . $ 164,776 $ 136,304 $ 28,472 20.9%
=========== =========== =========
Revenues for the existing clusters increased primarily due to increased
preneed and at need sales of merchandise and services. Included in the existing
cluster increase was $9,367,000 in increased revenues from cemeteries acquired
since the beginning of 1993.
Cemetery costs were incurred as follows:
Six Months Ended
June 30, Increase/ Percentage
(Thousands) 1994 1993 (Decrease) Increase
______________________________________________________________________________________________________________________________
Existing clusters . . . . . . . . . . $ 97,135 $ 85,560 $ 11,575 13.5%
New clusters* . . . . . . . . . . . . 3,182 - 3,182
----------- ---------- ---------
Total clusters . . . . . . . . . . . 100,317 85,560 14,757 17.2%
Non-cluster and disposed operations . 3,535 4,092 (557)
Administrative overhead . . . . . . . 8,221 7,470 751
----------- ---------- ---------
Total cemetery costs . . . . . . . . $ 112,073 $ 97,122 $ 14,951 15.4%
=========== ========== =========
Costs at existing clusters increased $11,575,000 due primarily to an
increase of $6,626,000 from cemeteries acquired since the beginning of 1993.
Costs from other existing cluster cemeteries increased $4,949,000 due to the
costs associated with the increased revenues discussed above. The cemetery
gross margin increase of 32.0% this year compared to 28.7% last year reflects
the strong revenue growth as well as continued cost control, particularly in
selling expenses. Administrative overhead costs have decreased to 5.0% of
revenues this year compared to 5.5% last year.
Financial Services
Financial service revenues and costs have increased as a result of increased
loans outstanding. Improved interest rate spreads have increased the gross
margin percentage to 44.8% this year from 42.0% last year. The average
outstanding loan portfolio during the current year was $246,408,000 with an
average interest rate spread of 3.45% compared to $204,462,000 and 3.21%,
respectively, last year.
_____________
*Represents new geographic areas entered into since the beginning of 1993
for the period that those businesses were owned by the Company.
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14
Other Income and Expenses
General and administrative expenses increased by $5,984,000 or 31.7%. Of the
increase, $3,503,000 is attributable to personnel expenses primarily in the
form of restricted stock costs. Professional fees have increased $2,455,000 in
the current year primarily from legal costs associated with the ongoing
informal Securities and Exchange Commission (Commission) investigation of the
Company (See Item 1. Legal Proceedings in Part II of this report). As a
percentage of revenues, general and administrative expenses were 4.7% this year
compared to 4.3% last year.
Interest expense, which excludes the amount incurred through financial
service operations, increased $3,568,000 or 12.4% during the current year
primarily due to the issuance of $150,000,000 of 7.875% debentures in February
1993 and increased borrowings under the Company's lines of credit and
commercial paper primarily used to fund the Company's acquisition program..
The $2,021,,000 increase in other income results primarily from the sale of
excess real estate and additional equity income on corporate investments in
1994.
The provision for income taxes has increased to 40.5% from 39.3% last year
primarily due to the August 1993 increase in the federal corporate tax rate.
THREE MONTHS ENDED JUNE 30, 1994
COMPARED TO THREE MONTHS ENDED JUNE 30, 1993
RESULTS OF OPERATIONS:
Segment information for the Company's three lines of business are as follows:
Three Months Ended June 30, Percentage
(Thousands) 1994 1993 Increase Increase
_______________________________________________________________________________________________________________
Revenues:
Funeral . . . . . . . . . . . $172,651 $143,988 $ 28,663 19.9%
Cemetery . . . . . . . . . . . 85,393 69,284 16,109 23.3
Financial services . . . . . . 4,818 3,777 1,041 27.6
-------- -------- --------
262,862 217,049 45,813 21.1
-------- -------- --------
Costs and expenses:
Funeral . . . . . . . . . . . 123,629 103,219 20,410 19.8
Cemetery . . . . . . . . . . . 59,576 49,521 10,055 20.3
Financial services . . . . . . 2,916 2,389 527 22.1
-------- ------- ------- ----
186,121 155,129 30,992 20.0
-------- ------- -------
Gross profit and margin percentage:
Funeral . . . . . . . . . . . 49,022 28.4% 40,769 28.3% 8,253 20.2
Cemetery . . . . . . . . . . . 25,817 30.2 19,763 28.5 6,054 30.6
Financial services . . . . . . 1,902 39.5 1,388 36.7 514 37.0
-------- ------- -------
$ 76,741 29.2% 61,920 28.5% 14,821 23.9%
======== ======= =======
14
15
Funeral
Funeral revenues were generated as follows:
Three Months Ended
June 30, Increase/ Percentage
(Thousands) 1994 1993 (Decrease) Increase
_______________________________________________________________________________
Existing clusters . . . . . . . . . . $151,407 $135,874 $15,533 11.4%
New clusters* . . . . . . . . . . . . 14,119 117 14,002
-------- -------- -------
Total clusters . . . . . . . . . . 165,526 135,991 29,535 21.7%
Non-cluster and disposed operations . 7,125 7,997 (872)
-------- -------- -------
Total funeral revenues . . . . . . $172,651 $143,988 $28,663 19.9%
======== ======== =======
The $15,533,000 increase in revenues at existing clusters was the result of
2,092 or 5.3% more funeral services performed and a $200 or 5.9% higher
average sales price. Included in this increase was $11,163,000 in revenues
from locations acquired after March 31, 1993. During the three months ended
June 30, 1994, the Company sold $60,998,000 of prearranged funeral services
compared to $35,113,000 for the same period in 1993. These prearranged funeral
services are deferred and will be reflected in funeral revenues in the periods
that the funeral services are performed.
Funeral costs were incurred as follows:
Three Months Ended
June 30, Percentage
(Thousands) 1994 1993 Increase Increase
_______________________________________________________________________________
Existing clusters . . . . . . . . . . $101,311 $ 90,559 $10,752 11.9%
New clusters* . . . . . . . . . . . . 9,588 21 9,567
-------- -------- -------
Total clusters. . . . . . . . . . . 110,899 90,580 20,319 22.4%
Non-cluster and disposed operations . 6,096 6,015 81
Administrative overhead . . . . . . . 6,634 6,624 10
-------- -------- -------
Total funeral costs . . . . . . . . $123,629 $103,219 $20,410 19.8%
======== ======== =======
The gross profit margin at existing clusters declined slightly this year due
to slightly higher (as a percentage of revenues) merchandise and personnel
costs primarily attributable to acquisitions added to the existing clusters
after March 31, 1993. Typically, acquisitions will temporarily exhibit
slightly lower gross profit margins than the Company's existing locations.
These acquisitions accounted for $8,291,000 of the existing cluster cost
increase. Administrative overhead costs related to funeral operations when
expressed as a percentage of revenues showed marked improvement to 3.8% this
year from 4.6% last year. This helped the total funeral gross profit margin
improve to 28.4% from 28.3% last year.
_______________________________
*Represents new geographic areas entered into after March 31, 1993 for the
period that those businesses were owned by the Company.
15
16
Cemetery
Cemetery revenues were generated as follows:
Three Months Ended
June 30, Increase Percentage
(Thousands) 1994 1993 (Decrease) Increase
_______________________________________________________________________________
Existing clusters . . . . . . . . . . $79,585 $67,030 $12,555 18.7%
New clusters* . . . . . . . . . . . . 3,648 - 3,648
------- ------- -------
Total clusters . . . . . . . . . . . 83,233 67,030 16,203 24.2%
Non-cluster and disposed operations . 2,160 2,254 (94)
------- ------- -------
Total cemetery revenues . . . . . . $85,393 $69,284 $16,109 23.3%
======= ======= =======
Revenues for the existing clusters increased primarily due to increased
preneed and at need sales of merchandise and services. Included in the
existing cluster increase was $4,069,000 in increased revenues from cemeteries
acquired after March 31, 1993.
Cemetery costs were incurred as follows:
Three Months Ended
June 30, Increase/ Percentage
(Thousands) 1994 1993 (Decrease) Increase
_______________________________________________________________________________
Existing clusters. . . . . . . . . . . $52,762 $44,443 $ 8,319 18.7%
New clusters* . . . . . . . . . . . . 1,736 - 1,736
------- ------- -------
Total clusters . . . . . . . . . . . 54,498 44,443 10,055 22.6%
Non-cluster and disposed operations. . 1,667 1,585 82
Administrative overhead. . . . . . . . 3,411 3,493 (82)
------- ------- -------
Total cemetery costs . . . . . . . . $59,576 $49,521 $10,055 20.3%
======= ======= =======
Costs at existing clusters increased $8,319,000 due to an increase of
$3,104,000 in costs from cemeteries acquired after March 31, 1993 and a
increase of $5,215,000 from other existing cluster cemeteries. Lower gross
profit margins for the cemeteries acquired after March 31, 1993 and included in
existing clusters caused the gross profit margin for existing clusters to
remain constant for both quarters. Strong operating results from the Company's
Australian cemeteries (acquired in the third quarters of 1993 and included in
new clusters) and decreased administrative overhead costs helped the total
gross profit margin increase to 30.2% in the current quarter from 28.5% last
year.
Financial Services
Financial service revenues and costs have increased as a result of increased
loans outstanding. Improved interest rate spreads have increased the gross
margin percentage. The average outstanding loan portfolio during the current
quarter was $240,122,000 with an average interest rate spread of 3.48% compared
to $211,266,000 and 3.25%, respectively, last year.
_______________________________
*Represents new geographic areas entered into after March 31, 1993 for the
period that those businesses were owned by the Company.
16
17
Other Income and Expenses
General and administrative expenses increased by $2,373,000 or 26.4%. Of the
increase, $818,000 is attributable to personnel expenses primarily from
incentive compensation and retirement plan accruals. Professional fees have
increased $1,391,000 in the current year due primarily to legal costs
associated with the ongoing informal investigation of the Company by the
Commission (See Item 1. Legal Proceedings in Part II of this report). As a
percentage of revenues, general and administrative expenses were 4.3% in the
current quarter and 4.1% last year.
Interest expense, which excludes the amount incurred through financial
service operations, increased $2,525,000 or 17.6% during the current quarter
primarily due to increased borrowings under the Company's lines of credit and
commercial paper during the current quarter primarily used to fund the
Company's acquisition program.
FINANCIAL CONDITION AT JUNE 30, 1994:
The Company's acquisition of funeral homes and cemeteries and capital
expenditures, including major improvements to existing properties, continue to
require significant amounts of cash. Funds generated from earnings of existing
funeral and cemetery operations, together with unused lines of credit or other
available borrowings, are expected to be sufficient for the Company to continue
its current acquisition (including the acquisition of GSG discussed in Note 3)
and operating policies. At August 5, 1994, the Company had available
approximately $298,000,000 of borrowing ability under its various credit lines.
In addition to the sources of cash from operations and credit lines, the
Company has 12,149,000 shares of common stock, $70,227,000 of guarantees of
promissory notes and $74,382,000 of convertible debentures registered with the
Commission to be used exclusively for future acquisitions.
Current maturities of long-term debt include $48,660,000 of medium-term
notes that mature in the first half of 1995. The Company's total debt to
capitalization ratio increased slightly to 55.8% from 55.1% at December 31,
1993.
HEDGING TRANSACTIONS (SEE NOTE 5):
The Company has entered into hedging transactions to reduce its exposure to
adverse fluctuations in interest and foreign exchange rates. While the hedging
transactions are subject to risk of loss from change in interest rates and
exchange rates, these losses would generally be offset by gains on the
exposures being hedged. The Company has realized $1,093,000 (USD) losses on
contracts entered into as hedge transactions since the beginning of 1993.
These realized losses were deferred and are being amortized into income over
periods ranging from eight months to five years.
At June 30, 1994, the Company has outstanding foreign currency and interest
rate swaps in the notional amounts of $142,715,000 (AUD) and $75,000,000
(USD). As of June 30, 1994, net unrealized losses before taxes from these
hedging agreements were estimated to be $3,800,000 (USD) (which is the
estimated cost to terminate these hedging agreements). In the opinion of
management, such losses were offset by the increased value of the exposures
being hedged.
OTHER MATTERS:
See Item 1. Legal Proceedings in Part II of this report for information
regarding an informal investigation by the Commission.
17
18
SERVICE CORPORATION INTERNATIONAL
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The staff of the Securities and Exchange Commission (the
"Commission") is conducting an informal private investigation
relating to the change in the Company's principal independent
accountants and the Company's Current Report on Form 8-K dated March
31, 1993, as amended, filed with the Commission reporting such
change, as well as the Company's current accounting and reporting of
pre-need sales. The Commission staff has advised the Company that
the investigation should not be construed as an indication by the
Commission or its staff that any violations of law have occurred, or
as a reflection upon any person, entity or security. The
investigation is continuing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 12, 1994 the Company held its annual meeting of shareholders
and the shareholders elected five directors. The shares voting on
the director nominees were cast as follows:
Abstentions or Broker
Nominee Votes For Votes Withheld Non-votes
------- --------- -------------- ---------
Anthony L. Coelho 74,465,896 466,725 -0-
A. J. Foyt, Jr. 74,441,782 490,839 -0-
E. H. Thornton, Jr. 74,461,341 471,280 -0-
R. L. Waltrip 74,475,592 457,029 -0-
Edward E. Williams 74,476,644 455,977 -0-
In addition, the shareholders approved the Company's 1993 Long-Term
Incentive Stock Option Plan and the awards made thereunder in 1993,
which plan and awards are described in the Company's proxy statement
dated April 12, 1994. Such plan and awards were approved with
56,354,316 votes cast for, 9,864,667 votes cast against, 914,966
votes abstaining and 7,798,672 broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 1993 Long-Term Incentive Stock Option Plan (Incorporated
by reference to Annex A to Proxy Statement dated April
12, 1994).
11.1 Computation of earnings per share.
12.1 Ratio of earnings to fixed charges.
(b) Reports on Form 8-K
There were no reports on Form 8-K during the three months
ended June 30, 1994.
18
19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
August 12, 1994
SERVICE CORPORATION INTERNATIONAL
By: /s/ Samuel W. Rizzo
---------------------------
Samuel W. Rizzo
Executive Vice President
Chief Financial
Officer/Treasurer (Principal
Financial Officer)
19
20
INDEX TO EXHIBITS
Exhibit
Number
-------
10.1 1993 Long-Term Incentive Stock Option Plan (Incorporated by reference to
Annex A to Proxy Statement dated April 12, 1994).
11.1 Computation of earnings per share.
12.1 Ratio of earnings to fixed charges.